What you must know about Rashi Peripherals IPO?

Rashi Peripherals IPO– About the company

Rashi Peripherals IPO was incorporated in the year 1989 and is a major distributor of technology related products in India. The company essentially specializes in distribution of products related to Information and Communication Technology (ICT). Rashi Peripherals Ltd  is not just a distributor but a full gamut service provider too. For instance, apart from distribution of technology products, the company also offers other value-added services like pre-sales, technical support, marketing services, credit solutions and warranty management services. Rashi Peripherals Ltd essentially operates under 2 business verticals; Personal Computing Enterprises & Cloud Solutions (PES) and Lifestyle & IT essentials (LIT). Currently, Rashi Peripherals Ltd is an all-India distributor for 52 global technology brands and operates across a network of 50 branches, 63 warehouses, and 8657 distributors. This net is spread across 680 locations in 28 Indian States and UTs.

The PES vertical comprises of personal computing devices, enterprise solutions, embedded designs, embedded products, and cloud computing. The second LIT vertical comprises the distribution of a wide array of products like graphic cards, central processing units (CPUs), motherboards; storage & memory devices, keyboards, mouse, webcams, monitors, wearables, casting devices, fitness trackers and gaming accessories. In addition, the LIT vertical also sells power devices like UPS and inverters; apart from networking and mobility devices. Some of the major clients whose products the company distributes include ASUS Global, Dell International, HP, Lenovo, Logitech Asia, NVIDIA Corporation, Intel, Western Digital (UK), Schneider Electric IT Business, Eaton Power, ECS Industrial Computers, TPV Technology, LG Electronics, and Toshiba Electronics; among others. Rashi Peripherals employs 1,433 personnel on its rolls across sales and technical support.

The fresh funds will be used to repay / prepay some of the high-cost borrowings of the business and for funding working capital gaps. Promoters currently hold 89.65% in the company, which will get diluted post the IPO to 63.41%. The IPO will be lead managed by JM Financial and ICICI Securities, while Link Intime India Private Ltd will be the registrar to the IPO of Rashi Peripherals.

Highlights of the IPO issue of Rashi Peripherals IPO

Here are some of the key highlights to the public issue of Rashi Peripherals Ltd.

• Rashi Peripherals IPO will be open from February 07th, 2024 to February 09th, 2024; both days inclusive. The stock of Rashi Peripherals Ltd has a face value of ₹5 per share and the price band for the book building IPO has been set in the range of ₹295 to ₹311 per share.
   
• The IPO of Rashi Peripherals Ltd will be entirely a fresh issue of shares with no offer for sale (OFS) component. As you would be aware, a fresh issue tends to bring in fresh funds into the company, but is also EPS and equity dilutive. On the other hand, OFS is just a transfer of ownership.
   
• The fresh issue portion of the IPO of Rashi Peripherals Ltd comprises the issue of 1,92,92,604 shares (192.93 lakh shares approximately), which at the upper price band of ₹311 per share will translate into a fresh issue size of ₹600 crore.
   
• Since there is no offer for sale component, the fresh issue portion will also double up as total issue size of the IPO. Thus, the total IPO of Rashi Peripherals Ltd will comprise of a fresh issue of 1,92,92,604 shares (192.93 lakh shares approximately) which at the upper end of the price band of ₹311 per share aggregates to total issue size of ₹600 crore.

The IPO of Rashi Peripherals Ltd will be listed on the NSE and the BSE on the IPO mainboard.

Promoter holdings and investor quota allocation quota

The company was promoted by Krishna Kumar Choudhary, Sureshkumar Pansari, Kapal Suresh Pansari, Keshav Krishna Kumar Choudhary, Chaman Pansari, Krishna Kumar Choudhary (HUF), and Suresh M Pansari HUF. As per the terms of the offer, not more than 50% of the net offer is reserved for the qualified institutional buyers (QIBs), while not less than 35% of the net offer size is reserved for the retail investors. The residual 15% is kept aside for the HNI / NII investors. The table below captures the gist of the allocation to various categories.

It may be noted here that the Net Offer above refers to the quantity net of employee quota, if any. There is no employee quota that has been communicated by the company as of date in the RHP. The anchor portion, will be carved out of the QIB portion and the QIB portion available to the public will be reduced proportionately. The original size of the IPO was ₹750 crore, but was later reduced to ₹600 crore after the company had successfully raised ₹150 crore as part of the pre-IPO placement of shares.

Lot sizes for investing in the IPO of Rashi Peripherals Ltd

Lot size is the minimum number of shares that the investor has to put in as part of the IPO application. The lot size only applies for the IPO and once it is listed then it can be even traded in multiples of 1 shares since it is a mainboard issue. Investors in the IPO can only invest in minimum lot size and in multiples thereof. In the case of Rashi Peripherals Ltd, the minimum lot size is 48 shares with upper band indicative value of ₹14,928. The table below captures the minimum and maximum lots sizes applicable for different categories of investors in the IPO of Rashi Peripherals Ltd.

It may be noted here that for the B-HNI category and for the QIB (qualified institutional buyer) category, there are no upper limits applicable.

Key dates for Rashi Peripherals IPO and how to apply?

The issue opens for subscription on 07th February 2024 and closes for subscription on 09th February 2024 (both days inclusive). The basis of allotment will be finalized on 12th February 2024 and the refunds will be initiated on 13th February 2024. In addition, the demat credits are expected to also happen on 13th February 2024 and the stock will list on 14th February 2024 on the NSE and the BSE. Rashi Peripherals Ltd will test the appetite for such quasi digital stocks in India. The credits to the demat account to the extent of shares allotted will happen by the close of 13th February 2024 under ISIN (INE0J1F01024). Let us now turn to the practical issue of how to apply for the IPO of Rashi Peripherals Ltd.

Investors can apply either through their existing trading account or the ASBA application can be directly logged through the internet banking account. This can only be done through the authorized list of self-certified syndicate banks (SCSB). In an ASBA application, the requisite amount is only blocked at the time of application and the necessary amount is debited only on allotment. Investors can apply in the retail quote (up to ₹2 lakh per application) or in the HNI / NII quota (above ₹2 lakh). Minimum lot sizes will be known after pricing.

Financial highlights of Rashi Peripherals Ltd

The table below captures the key financials of Rashi Peripherals IPO for the last 3 completed financial years.

Data Source: Company RHP filed with SEBI (FY refers to Apr-Mar period)

There are few key takeaways from the financials of Rashi Peripherals Ltd which can be enumerated as under

1. In the last 3 years, revenue growth has been rather erratic, although it appears to have stabilized in the last 2 years. However, most of the growth has come in the previous year, with flat sales in the latest year. Net profits are lower in the current quarter since the expenses have risen sharply in the latest year.
    
2. The net profits margins have been quite tepid at around 1.3%, but that is the nature of the business where the profits come from volumes and not from margins. The margins are normally fixed based on the reverse IRR calculations on cost. However, the return on equity is fairly attractive for the company.
    
3. The asset turnover ratio has been consistently over 3 and that is the nature of the business  as it is relatively asset light. Hence, the high volumes of sales are an advantage. However, for a hardware retail business, the current level of ROA is fairly attractive.

Let us turn to the valuations part. On the latest year diluted EPS of ₹29.50, the upper band stock price of Rs311 gets discounted at a P/E ratio of 10.54 times. Even considering that the company is in a low margin business, the P/E appears to be fairly reasonable, despite the fall in profits in the latest year. There are also some qualitative edges to ponder about.

Here are some qualitative advantages that Rashi Peripherals Ltd brings to the table.

• Existing deep relationships with the existing product originators allows the company relatively better terms and assured business.
   
• The company has the advantage of a pan-India presence as well as a multi-channel distribution footprint across digital, brick-and-mortar and omnichannel.
   
• Business model is largely scalable at short notice and without entailing substantial capital investments at any point of time.

Hardware retailing is, by default a low margin business. However, what stands out about the company is the fact that it has kept the margins steady. More importantly, the price of the IPO does leave something on the table for investors in terms of valuations. Investors can look at this investment as a longer term bet on the hardware retail business.